Macau’s Real Estate Market Will Remain Stagnant in 2022

COVID and interest rate increases continue to put pressure on the market.

JLL reports that Macau has been gradually returning to normal since the new wave of the COVID-19 pandemic that emerged in the middle of the year was brought under control in its 2022 Macau Mid-year Property Review and forecast. However, Macau’s real estate market will remain unstable in the absence of encouraging elements like the reopening of the border and potential interest rate increases.

The DICJ statistics show that Macau’s gaming revenue was MOP 26.27 billion in 1H2022, a decline of 46.4% year over year. The pandemic and problems with the VIP market stopped the gaming industry’s growth. In 1H2022, the VIP market’s revenue fell by 61.3% year over year to MOP 6.83 billion, making up just 26.0% of the city’s overall gaming revenue.

In the first quarter of 2022, Macau’s GDP totaled MOP 54.27 billion, an 8.9% year-over-year decline. Private consumption expenditure and government final consumption expenditure decreased by 2.7% and 2.0% year over year, respectively, according to statistics of the expenditure-based GDP. The import and export of goods, however, increased by 29.0% and 56.8% year over year, respectively, as trade in goods soared. The decline in service exports caused a 35.4% year-over-year decline in net exports overall. 3.2% y-o-y growth in fixed capital formation was primarily due to an increase in government investment.

The number of visitors who arrived in Macau overall in 1H2022, down 11.8% year over year, was approximately 3,465,000, according to DSEC statistics. 90.3% of all visitors to Macau were from the People’s Republic of China, and 28.3% of all visitors to Macau were under the Individual Traveler Scheme (ITS). The number of hotel rooms available in Macau as of mid-2022 was 36,369, a decrease of 1,312 rooms or 3.5% from the end of 2021. In total, only 37.5% of Macau’s hotel rooms were occupied, while visitors’ average length of stay remained at 1.8 nights.

All industries in Macau experienced a continued exodus of foreign workers in 2022. The number of imported workers was estimated to be 162,391 as of the end of June this year, down 8,707 or roughly 5.1% from the end of 2021, according to DSEC statistics. The overall unemployment rate was 3.7%, and the rate of underemployment was 4.1%. Overall, the median monthly income decreased from MOP 15,300 at the end of 2021 by 3.2%. At MOP 659.64 billion, the total resident deposit in Macau was down 1.2% from the end of 2021.

In late June of this year, a fresh COVID-19 pandemic wave appeared in Macau and Zhuhai. The two cities’ governments’ quick reactions and preventative measures allowed the situation to be successfully brought under control. However, given the strict border control measures the city has implemented recently, investors were unconvinced about the outlook for Macau’s real estate market. Most casinos and hotels have made more cautious financial performance predictions for this year, anticipating a modest recovery only in 2019. In the short term, the economy will continue to be impacted by issues like the COVID-19 pandemic, hyperinflation, interest rate hikes, and a lack of liquidity among Mainland Chinese real estate companies, according to Mark Wong, Director of Valuation Advisory Services at JLL Macau.

A total of 1,632 residential sales transactions were recorded in 1H2022, down significantly by 50.5% year over year, according to DSEC statistics. There were no new projects started during that time. Due to the economic downturn and potential interest rate increases, investors and prospective buyers have a tendency to be cautious. Residential transaction volume decreased. Only 44 pre-sale transactions were recorded during 1H2022, which represents a historically low of 2.7% of the total volume of residential transactions.

Pre-sale permits for a total of 3 projects totaling 100 new residential units with a combined GFA of roughly 10,372.67 sqm were issued in 1H2022. The restoration of Sin Fong Garden was finished at the same time. Sin Fong Garden, which was initially constructed in the 1990s but was later discovered to have structural problems and deemed a dangerous building in 2012, began to be rebuilt in late 2018. Sin Fong Garden offers a total of 144 residential units at a height of about 100 m.

Residential properties’ capital and rental values kept declining. High-end and mass-to-medium residential property rental values decreased by 13.2% and 8.3% year over year in 1H2022, respectively. High-end and mass-to-medium residential property capital values declined by 8.2% and 7.6% year over year, respectively, while yields on both types of properties were 1.5%. Some landlords who needed money immediately sold their properties at a discount of 20% below market value.

“In the first half of 2022, Macau’s residential transaction volume reached a historical low. Short-term increases in mortgage rates are expected. In addition to being under pressure from high unemployment and underemployment rates, the residential real estate market will also experience pressure in 2H2022. Currently, the average price of a home has decreased by about 10% from the previous year. A negative wealth effect under the environment of interest rate hikes may possibly occur if the economic downturn and epidemic persist, increasing the number of residential mortgages with negative equity. As a result, there may be a decline in consumption, which would have negative effects on the economy once more. To lessen the effect on the economy as a whole, the government should take proactive steps to stabilize the real estate market, says Oliver Tong, General Manager at JLL Macau and Zhuhai.